Monday, September 29, 2008

When you open the bottle you cannot get the Genie back in.

The US House defeated what has been called the “Wall Street Bail Out” program. The phone calls by the voters were running 10 to 1 against the bill.over the weekend. When the vote took place today, the market sold off 777 points. What is more important than the point sell off was how much money was lost today.

It is projected bail out cost. I can tell that not possible to know how long it would have taken to spend the $700 billion--in one day 1.2 trillion dollars was lost in the US stock market and who knows how much will be lost before something is passed.

The voters were worried about the 700 billion dollars and paid very little attention to the potential impact on Main Street. The issue seems to have two camp; Wall Street and Main Street. For some reason Main Street does not seem to understand that Main Street is Wall Street. Banks are closing and Americans are taking their money out of banks even if they have it in FDIC insured deposit accounts. If the neighborhood bank looses deposits it has less money to lend to people to buy cars, pay tuition and keep money in the ATM machine.

The small business people, perhaps some of you, will find it difficult to get money to run their businesses. They may have trouble making payroll because the bank may not have the cash to cover the checks or the cost to borrow money to fund payroll makes it impossible for the small businessperson to survive.

The 1.2 trillion dollars that was lost today came not from Wall Street, but from your investment account. It came from your company pension or your 401k or IRA. You lost the money not Wall Street. The longer we go without a resolution the longer it will take to build confidence for people to begin to invest again.

Based on what I heard this evening Everybody now believes that something will be done, but know body knows what it will look like and what impact it will have on the markets. nothing will be voted on until late Thursday.Thursday is a long way away from Monday. The markets could sell off over night in reaction to what happened today and that momentum could continue into tomorrow and perhaps Wednesday.
The direction of the market will have a great deal to do with who says what over the next day or so. I think somebody needs to come out and say, “We did not think the reaction would be this bad.” If nobody starts talking then the markets are in for another sell off in the next two days.

What should you be doing at this point? I think you need to make sure any money you have in a brokerage account is not in a money market fund but in an FDIC insured money market account or T-Bills if you can get them. Demand is greater than supply of T-Bills right now. Take an honest look at your investments to try to assess the risk of default.

Money in mutual funds is very difficult to assess because you do not really know what they own. Look at the objective and see how the fund has preformed against the broad market. If the fund says, its benchmark is the S&P 500 then see how close it has preformed against the index.

If after your review, you have candidates to sell then use limit orders close to the market. Do not-- I say again-- do not uses market orders. Market orders give the traders the ability to take advantage of you.

As hard as it is to believe this will pass, I do not know how long it will take,but it will pass. Take deep breaths and keep a brown bag handy.
Dan Perkins

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